Chipmakers divided on manufacturing changes

Commentary: Industry should play fair and split costs of funding

SAN FRANCISCO (MarketWatch) -- Behind the scenes in the semiconductor industry, an early debate is brewing over the development of next generation production techniques, the new equipment that will be required to make them, and who is going to pay for it all.

The debate is over the next wafer size, which will allow semiconductor makers to get more chips per silicon wafer, the key ingredient -- or the brains -- for cell phones, computers, iPods and basically every electronic gadget created. Yielding more chips per wafer usually improves the chip maker's bottom line, allowing them to sell more chips, after a hefty upfront development and manufacturing cost. Chip plants cost at least $2 billion to build.

The problem is that in order to produce bigger wafers than those in use today, most of the expensive machines used in chip manufacturing need to be swapped out for new ones designed for larger wafers. Some of these machines include robotic monorails to transport the wafers around the factory (and avoid any human contact), and the complex systems that transfer chemicals, gases and various other steps to etch circuitry patterns onto the silicon.

The industry goes through this transition about every 10 to 15 years. The most recent shift started in the mid 1990s and adoption began in the late '90s to 300-millimeter wafers, about the size of a large dinner plate, from salad-plate size 200-millimeter wafers.

Trailblazers in that transition included Motorola Inc.
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and Siemens AG
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which built a factory as a joint venture. Equipment companies such as Applied Materials Inc.
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Novellus Systems Inc.
NVLS
KLA-Tencor Corp.
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and others pretty much funded the development of new equipment. That move to the larger 300-millimeter wafer size is still going on today. Many companies still operate older factories that make 200-millimeter wafers

Resistant to change

The transition to 300-millimeter wafers was not a very happy one for the equipment makers, who are now resisting another change too soon. They have not sold as much of the new 300 millimeter equipment as they forecast.

"The movement to 300-millimeter at the end of the '90s almost bankrupted the semi equipment guys," said George Burns, president of Strategic Marketing Associates, a consulting firm in San Luis Obispo, Calif. His expertise is in chip manufacturing plants, also known as fabs, for fabrication. The last transition, he said, hit the industry right as it began to go into one of its worst downturns, that started in 2001. "The cost was really very onerous."

In the last several months, the biggest chip makers in the world, including behemoth Intel Corp.
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and some of the top memory chip firms, have been trying to get the industry to start thinking about the next transition, which will be to 450-millimeter wafers.

"The biggest companies are leading the charge," Burns said. "The others are saying we don't need it, we can't afford it."

No one wants to be alone footing the bill. Intel is trying to get everyone in the industry to start thinking about the transition now, to plan development and agree on standards.

At the same time, the chip makers are also spending millions of dollars to keep shrinking the size of the transistors themselves, another costly element of manufacturing.

Intel has lead that charge, funding its own research into new materials and techniques that let it shrink the transistors as it fights the laws of physics developing circuitry at the sub-atomic scale. Shrinking the number of transistors per chip allows for more transistors on a chip, and is necessary to keep up with Moore's Law, an axiom first stated by Intel co-founder Gordon Moore, that the number of transistors should double about every two years.

The chip giant has been accused by some of trying to bully the industry into moving to a larger wafer size before it is ready. At an industry meeting in October, some equipment makers said the timeframe of 2012 set by Intel and an industry group was too aggressive, according to sources and Electronic Engineering Times.

Since then, Intel seems to be backing down and is not specific on timing. Intel told me it is still very early to be pinpointing an exact date for the transition to the next generation wafer size. "We are still talking to the industry about how this will happen," said Kari Aakre, an Intel spokeswoman. "We haven't set a timetable for it."

The 300-milimeter wafer still has legs

But this still does not resolve the issue of who is going to pay for the development of the new machinery and the initial plants to put it in. For now, equipment companies are trying to stave off development as long as they can. They are touting the long life ahead with the current 300-millimeter technology.

"The growth is not as insane as it was maybe 15 to 20 years ago," said Iddo Hadar, chief technical officer of the foundation engineering group at Applied Materials in Santa Clara, Calif. "Our customers have built one-third of the factories that had been expected (for 300-millimeter wafers)...All of us are painfully aware of the fact that projections can go wrong."

Industry leaders like Intel see the need to influence the discussion of next generation manufacturing equipment and tools early on. And to keep Moore's Law going, the world's largest chip maker has to plan constantly, even farther out in the future than it can see. It has the clout to set the pace. But because Intel is among the few companies now that can afford to build multi-billion dollar plants, it would also be among the earliest beneficiaries of any new manufacturing technologies, before others can cough up the money to retool their fabs.

But Intel and the big memory chip makers also don't want to end up like IBM, which led the transition to 200-millimeter wafers, while other chip makers benefited from their investment.

IBM
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has no desire to go that route again. "We do not want to be first the next time around," said Dan Armbrust, a vice president in IBM's systems and technology group and at its 300-millimeter semiconductor operations.

I think the companies that stand to benefit the most from such a transition should come up with some way to fund the research for 450-millimeter wafers, if they will reap the most rewards. Since one key ingredient to the beginning of the transition is a manufacturing plant, a fair solution may be for the biggest players to fund a joint manufacturing venture, which are already well-accepted and becoming standard in the chip business as costs soar.

Dan Hutcheson, a well-regarded analyst and president of VLSI Research, spoke about the debate at chip equipment conference earlier this month. He now predicts the transition to the next wafer size won't happen until at least 2020, possibly as late as 2025. So the companies have a lot of time to squabble and think of other ideas on their own.

Hopefully, this time they will find a way to spread the burden more equitably than in the past.

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